• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing

Home Depot to Investors: We're Going to Be Aggressive

I'm long HD. Despite today's drop, I do not yet see this as a buying opportunity.
By STEPHEN GUILFOYLE
Nov 17, 2020 | 10:45 AM EST
Stocks quotes in this article: HD, HDS, LOW, AMZN, TSLA, WMT, CVS

Aggression. We like it. The question is... do investors like it? Home Depot (HD) released the firm's third quarter financial performance on Tuesday morning, just one day after announcing the all cash $8 billion deal ($56 per share) acquisition, or re-acquisition of HD Supply (HDS) . Home Depot had spun off the unit, which was one of North America's largest industrial products distributors back in 2007. The boards of both companies have already unanimously approved the deal, which is expected to close prior to the end of Home Depot's current fiscal quarter. That quarter expires one month into the calendar year.

For the quarter reported, Home Depot posted EPS of $3.18, which beat Wall Street by about 15 cents. Revenue generation landed at $33.54 billion, beating the tar out of consensus view in the mid to high $31 billions. Sales amounted to growth of 23.3% year over year, matching the growth that the firm experienced last quarter as Americans have flooded their way out of urban areas during the pandemic, creating a dramatic increase in demand for what firm's like Home Depot and Lowe's (LOW) offer.

Details

What caught my attention right away was comparable store sales, which exploded 24.1% higher for the quarter (24.6% in the U.S.), absolutely crushing estimates of 16.9%. Transactions increased 13%, while the average ticket price increased 10%. Sales per square foot jumped 23.1%, while total store count grew 5%. Know a lot of retailers still increasing their store count? Well, here's one. Can't wait to see what Lowe's throws through the hoop tomorrow.

There is a problem however, but a good one, which leads us back to the top of the first paragraph. Aggression. Gross margin of 34.2% missed expectations of 34.5%. Operating margin of 14.5% just missed the 14.6% that the street was looking for. What gives? People. That's what. The firm had told us previously that through early August, it had spent $1.3 billion on additional employee compensation due to the impacts of the Covid-19 pandemic. The firm told us today that at least some of these employee compensation programs will become permanent, This will result in about $1 billion in additional payroll expenses per year moving forward.

My Thoughts

There is no doubt that the firm is executing at an outstanding level. The best word would be excellent. Why is the stock trading lower? The answer is threefold. One, this is a down morning across equity markets, and this is a name where traders have sizable profits. Two, the firm has flat out told investors that they are going to be aggressive. They are going to spend money on re-acquiring a business that should solidify and strengthen the firm's market share among professionals, and then spend some more on their employees. This breeds "esprit de corps", this breeds loyalty, and will pay off down the road. However, this hurts margin right now, and for the short term.

Third, and perhaps most importantly... is the outperformance of the past two quarters sustainable post-pandemic? The folks may stop moving out to the suburbs. Folks may have less time to work on their homes. The increased expenses will not disappear though, at least not right away should there be a post-pandemic precipitous drop in demand. I am long the name. Despite today's drop, I do not yet see this as a buying opportunity. I think it best to wait and see what Lowe's says, and then compare.

Readers will note that coming out of the pandemic-induced cup with handle pattern, these shares did break out, peaking around $292. HD has been in a trading range (basing pattern) since late July/early August. Nothing has changed. Our pivot remains $292, our panic point... $262. I do not buy here (yet), I do not sell here. I do buy on momentum around the just surrendered 50 day SMA of $278, which seems far away, but the shares did trade there yesterday. Remember, Home Depot does pay a $1.50 quarterly dividend. That's six bucks a year, or 2.15%. I would prefer to hang on, than be forced out. Plus, we have Amazon (AMZN) and Tesla (TSLA) in inventory which allows us to tough out some negativity in names such as this, Walmart (WMT) , and CVS Health (CVS) .

(Amazon, Walmart, and CVS Health are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.)

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Stephen Guilfoyle was Long HD, AMZN, TSLA, WMT, CVS equity.

TAGS: Earnings | Economy | Investing | Markets | Stocks | Technical Analysis | Trading | Household Products

More from Investing

Bounce Takes Some of the Sting Out of a Painful Week

James "Rev Shark" DePorre
Mar 5, 2021 4:51 PM EST

It is premature to declare that the worst is over, but the intensity of the selling will go a long way toward helping a bottom to form.

The Selloff in Twilio Could Extend Deeper Into March

Bruce Kamich
Mar 5, 2021 2:30 PM EST

TWLO could bounce in the short-run but avoid the long side for now.

4 Important Takeaways From the February Jobs Report

Tom Graff
Mar 5, 2021 2:23 PM EST

Here's why we're probably multiple years from a Fed rate hike.

The Price Damage for Roku Is Not Over Yet

Bruce Kamich
Mar 5, 2021 1:25 PM EST

It looks like further declines are possible. Avoid the long side.

Roll the Dice on This Bounce

Timothy Collins
Mar 5, 2021 1:03 PM EST

This has given investors an opportunity to load up on small speculative names I love over the next 12 to 18 months.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 11:38 AM EST GARY BERMAN

    The INDU and DIA

    FIBOCALL: The INDU index and the DIA The INDU ...
  • 10:44 AM EST JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    "The Challenge of Short-Selling"
  • 08:40 AM EST PAUL PRICE

    Recent Pick SpartanNash (SPTN) Raised Its Quarterly Payout by 3.9%

  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login